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April 28, 2021

Finance ministry hopes economic recovery despite third corona wave

April 28, 2021

ISLAMABAD: Amid the third wave of COVID-19, the finance ministry has highlighted risks to different sectors, saying the economic recovery got hampered but Pakistan is grappling with the fresh wave.

With timely appropriate measures taken by the government to tackle the third wave, risks have been mitigated thus better prospects of economic growth are visible, the ministry hoped.

It also projected that all in all, inflation is expected to remain between 8.0-9.5 per cent next month. However, from the beginning of the next fiscal year, assuming the absence of any new supply shocks, favorable base effects may start to drive Y-o-Y inflation to lower levels. However, independent economists believe the monthly inflation will enter into a double-digit from next month.

In its monthly outlook report, the ministry stated that the third wave of the virus was still taking a toll on different parts of the world, especially the Asia-Pacific region. Pakistan is also currently grappling with the fresh wave of COVID-19 although prior to that a significant drop in infections was reported.

Although the third wave of the pandemic has created concerns about economic prospects, with sharp rebound of Large Scale Manufacturing (LSM), consistent exports of over $2 billion since October 2020 and significant increase of worker remittances will help in due economic recovery.

Further entering into international capital market after a gap of over three years and raising $2.5 billion successfully has shown investors’ confidence in better prospects of the economy. Going forward, the government’s economic policy will ensure sustainable, inclusive and equitable growth along with job creation.

Except production of cotton (7.0 million bales), major kharif crops surpassed the production targets of 2020-21 (Rice 8.4 million ton, sugarcane 81.0 million ton and maize 8.4 million ton) which thus glorify agriculture performance. For Rabi season 2020-21, wheat crop production is estimated to be at 26.04 million ton, showing an increase of 3.1 percent against last year’s production of 25.25 million ton.

LSM has surpassed its pre-COVID level of production in Feb FY 2021, witnessing 4.8 per cent growth on a Y-o-Y basis (-0.1 percent in Feb FY 2020). During Jul-Feb FY 2021, LSM grew by 7.5 per cent (-2.8 per cent last year.

In Feb FY 2021, on a YoY basis, textile, food beverages & tobacco, coke & petroleum products, non-metallic mineral products and automobile grew by 3.0, 3.5, 42.7, 7.8 and 5.4 per cent, respectively. Car production and sale increased by 20.1 and 31.5 per cent, respectively, during Jul-Mar FY 2021 while tractor production and sale increased by 57.5 and 57.2 per cent, respectively. During Jul-Mar FY21, total cement dispatches increased by 17 per cent to 43.3 million ton (37.0 million ton last year). Hence prudent government measures caused industrial sector rebound which will lay the foundation of almost three per cent GDP growth in FY 2021.

Although other portions of the services sector still suffer from the current new wave of COVID-19 infections and the related measures to safeguard people’s health, the economy is still expected to show strong growth.

Despite higher mark-up payments and COVID-related expenditures, the fiscal sector continues to perform better as a result of the government's efforts to maintain fiscal discipline. The first eight months of the current fiscal year have witnessed an increase of 9.2 per cent in net federal revenue receipts to reach Rs2,188 billion (Rs2,003 billion last year). Total expenditures grew by 1.3 per cent to Rs4,132 billion during Jul-Feb, FY2021 (Rs4,079 billion last year). Thus the fiscal deficit has been contained to 3.5 per cent of GDP during Jul-Feb, FY2021 (- 3.7 per cent of GDP last year). On the other hand, the primary balance posted a surplus of Rs286 billion during Jul-Feb, FY2021 (Rs104 billion last year).

FBR has been able to achieve double-digit growth in the first nine months of the current fiscal year and surpassed the target by more than 100 billion. The provisional net collection grew by 10.9 per cent to Rs3,395 billion during Jul-Mar, FY2021 (Rs3,060 billion last year). Within the total, domestic tax collection grew by 10.7 per cent, of which direct tax collection grew by 9.1 per cent, sales tax 13.2 per cent and FED increased by 2.8 per cent. In March 2021 alone, the provisional net collection increased by 49.4 per cent to Rs.481 billion (Rs322 billion in March 2020). For the month of March, the provisional net collection exceeded the target by Rs114 billion.

During 01st July–02nd April, FY2021 Money Supply (M2) posted growth of 7.1 per cent (Rs1,475.1 billion) as compared to growth of 8.4 per cent (Rs 1,485.3 billion last year). Within Money Supply, Net Foreign Assets (NFAs) of the banking system witnessed an expansion of Rs695.3 billion (Rs745.2 billion last year). On the other hand, Net Domestic Assets (NDAs) increased by Rs779.8 billion (Rs740.1 billion last year).

Private sector credit posted an expansion of Rs444.5 billion as compared to Rs332.8 billion last year which can be considered a healthy sign for economic activities. Within loans to private sector business, working capital loans increased by Rs 20.4 billion during Jul-Mar, FY2021 as compared to borrowing of Rs192.5 billion during same period last year. Demand for fixed investment loans has seen expansion of Rs127.4 billion compared to retirement of Rs5.2 billion last year.

Under subsidized schemes, Long Term Finance Facility (LTFF) loans witnessed expansion of Rs110.4 billion as compared to Rs37.0 billion last year. Under Export Finance Scheme (EFS), private sector credit increased by Rs68.7 billion as compared Rs109.2 billion last year.